Unlike other regions around the world, Latin American tax authorities force the usage of electronic invoicing for all business-to-business (B2B) transactions. What started as an e-billing requirement in Brazil in 2008 has quickly expanded across the region and is now entering new aspects of business operations including logistics as the government links the movement of goods and reception of goods to fiscal transactions. As of 2015, compliance is mandated in seven countries: Brazil, Mexico, Argentina, Chile, Ecuador, Peru, and Uruguay. While compliance in Latin America is unavoidable, companies do face a choice in how they handle these complexities. There are huge benefits for treasury and accounts payable organizations that are driven by these mandates.
Companies that see compliance only as a challenge to be conquered are missing an opportunity to improve supply chain management and liquidity. The standardization required by governments in Latin America means that companies already have the necessary systems in place to streamline their operations. Furthermore, maintaining a regional compliance solution ensures that companies can take advantage of these efficiencies throughout their regional operations. For example:
- With strict data requirements and verification processes, these mandates ensure that your purchases and payments are 100% accurate — that you receive the exact goods purchased and that your vendors provide the exact services described.
- This increased transparency also allows you to uncover any potential discrepancies or issues quickly. Through the enforcement of the Foreign Corrupt Practices Act, the U.S. government has used this data to uncover covert business deals and accounting fraud; companies can use it to prevent violations.
- Companies can also use these XML invoices to simplify the inbound receiving process, turning hours of manual data entry into a single scan-and-click process. Since the XML invoice is on the truck and can even arrive before the shipment, companies are assured that the invoice matches the merchandise, thus lowering the costs associated with receiving up to 40 percent.
- These mandates have created an ideal environment for supply chain financing, requiring that companies have all of the systems and data in place that they need to enhance liquidity. Since all invoices are standardized and clearly state approval for payment, invoices can be cleared for immediate payment, and in some cases, as soon as the goods arrive.
Straight-through processing (STP) is a term that has been written about quite a bit, especially in an age where corporations are looking to technology to drive process efficiency. By definition, STP takes electronic data from the invoice and automatically matches that data to a backing document, such as a purchase order and goods receipt. Where the match is exact or within tolerances set by the business, the invoice is processed and made ready for payment without manual intervention. This enables individuals to focus their energies on those invoices which are more problematic, which in turn allows companies to become more profitable and streamlined. Capturing the line item data electronically from an invoice is the major hurdle for STP, and parts of Latin America (Brazil and Mexico) eliminated many of the traditional roadblocks that have been plaguing electronic invoice initiatives in the European Union or the United States for a decade.
The benefits of the process across mandated Latin American countries include:
- The scanning and optical character recognition (OCR) technologies are removed, as the government has mandated the use of an electronic invoice.
- Multiple invoice formats are eliminated because the governments in Brazil and Mexico have standardized the invoice XML and data format.
- Supplier rollouts and conversion to electronic invoice are simplified as the government mandates that the XML invoice, which is what matters fiscally, be made available to the buyers.
- Many accuracy issues are reduced because the mandate requires the invoice to match what is on the truck. Part of the process dictates that a truck cannot leave the warehouse without a special printed version of the invoice accompanying it.
- Time constraints are minimized because the XML invoice can be made available to the buyer even before the goods arrive at the unloading dock. Your invoice can run through the majority of matching even prior to the truck arriving. This accelerated matching and time savings make the Latin American market an opportune target for supply chain financing and reverse factoring.
For shared service centers that really want to focus on simplifying their operations, why not focus on Latin America? Most of the projects I have been involved with over the last four years have always had a focus on Europe. But European electronic invoicing is complicated by the fact that your organization must convince suppliers and customers to move to an electronic invoice. This is either done through internal resources or outsourced to expensive supplier networks that tout their supplier base coverage. Often there is a goal to get a base of suppliers onboard over a three-year period. Unfortunately, the reality is that most organizations struggle to get more than 25% of their suppliers onboarded by the end of the three years unless they are able to mandate the use of electronic invoicing — and there are few companies that can do this without seeing repercussions from the supply base.
In short, a number of countries in Latin America have figured out how to set up the perfect technical environment, so don’t just look at basic compliance as the objective. Automated matching is only the first step of automation; there are huge advantages to come in the form of cost reductions in inbound receiving and more importantly in financial supply change management. Being able to accurately state that the invoice is approved for payment creates the perfect environment for supply chain financing. Learn more about the opportunity in Latin America for supply chain financing.
Steve Sprague is the Vice President of Product Strategy for Invoiceware International. He is responsible for both product management and e-Invoicing regulatory updates. Over the last 16 years, he has designed solutions for SAP ERP that deliver out-of-the-box compliance for Latin America and European Union e-invoicing and fiscal reporting requirements.